End of an era as Sanders leaves AMD

He's been hounded by Intel, criticized by shareholders and declared financially -- not to mention physically -- dead. But when W.J. "Jerry" Sanders steps down as AMD's chief executive later this week, he does so knowing that he accomplished his goal: AMD is a major player in the PC industry. "There is no question that they significantly altered the landscape of the PC industry," said Dean McCarron, an analyst at market research firm Mercury Research. Without AMD, "chip prices would be significantly higher and clock speeds would not have moved up as quickly." For 32 years, Sanders has been the walking personification of AMD. Stories abound. Growing up, he was so badly bloodied in a Chicago street fight that a priest performed last rites before he recovered. He once conducted a quarterly financial conference call from his hotel room while vacationing in Paris. A Rod Stewart imitator played an early AMD party -- only to be replaced by the real thing several years later. And a marble bust of Sanders presides over the lobby of the chipmaker's California headquarters. Although Sanders will remain chairman through to 2003, the company will be in the hands of its president, Hector Ruiz, a Motorola veteran who joined AMD in 2000 and is known as a hard-driving operations expert. "This is a major milestone for AMD," said Kevin Krewell, senior editor of The Microprocessor Report, an industry newsletter, and a former AMD employee. "He is the only chief executive the company (has) ever had. Hector is more low-key... When you meet (Sanders) at a corporate function, it is sort of like getting an audience with the Pope." Former execs describe him as an intense, intelligent leader who went out of his way to ensure that young employees got their opportunity to shine. "We were building a fab (chip-fabrication plant) in Ireland," recalled Rich Lovgren, who joined AMD as a part-time law clerk and rose to assistant general counsel. "I was 29 or 30 years old, and they said, 'Go over and cut a deal with the government. Buy the land and do the whole thing.' We worked hard and played hard. We were famous for the parties, but we were basically straight arrows." Despite his flamboyant style, Sanders and others have worked behind the scenes to prepare AMD for a new, more stable era. For years the company was known for its ability to snatch defeat from the jaws of victory: Market-share gains were invariably followed by financial losses and manufacturing problems. Since 1999, though, new chip designs and strategic relationships with IBM and others have led to more consistent sales. The company now regularly commands more than 20 percent of the processor market and has recently begun to make inroads into the lucrative server market. Management has also been revamped. A large number of AMD's top executives, including some of Ruiz's associates from Motorola, have been with the company less than three years. "Sales was in charge of everything. Now when you look at it, AMD is very much a manufacturing company," said Mercury Research's McCarron. "Whatever changes they made, it really turned the company around." Which Jerry? Whether his run as chief executive has been a success, though, depends in some ways on one's perspective. "He has the same kind of lightning-rod character that Bill Clinton had," said Nathan Brookwood, an analyst at consulting firm Insight 64. "There are people that really like him and people who really hate him. Because of the uneven financial performance, there are a lot of people on Wall Street who hate and don't trust Jerry Sanders." Critics clearly have had grounds to complain. In the past 15 years, AMD has had eight profitable years and seven in the red. Total net earnings for the period, including acquisitions and sell-offs, come to $1.66bn, including $983m in 2000. In comparison, Intel earned $1.4bn including acquisitions during the past two quarters. "The long-term investment proposition has been questionable because they've had such a tough time with consistency," said Hans Mosesmann, an analyst at Prudential Securities and a former AMD sales rep. "Hector is going to be more hands-on." Even today, profitability remains difficult. In January, the company predicted it would return to profitability in the second quarter of 2002. "Intel's ASPs (average selling prices) have nowhere to go but down," Sanders proclaimed. "Intel's over." Subsequently, Intel's ASPs rose and AMD's dipped, leaving Sanders to say last week that profitability in the second quarter will depend on a variety of circumstances. Hammer, AMD's next chip, will reverse these trends, the company says. Due late this year, the chip is designed to let AMD undercut Intel in the server market. AMD, though, will still have to convince software and hardware makers to adopt it, and so far most haven't touted AMD chips for the corporate market at all. Shareholders have also complained about the size of Sanders' paycheck. He regularly makes more than Intel chief executive Craig Barrett, but AMD's revenue is one-seventh that of Intel, and 2001 earnings, excluding acquisitions, were less than 1 percent of Intel's profit. For Sanders, regal trappings come with the job. He keeps mansions in Los Angeles, San Francisco and Malibu, California, and a chauffer drives him from San Francisco to AMD's headquarters in Sunnyvale, according to sources. While rival Andy Grove, chairman of Intel, works in a cubicle, Sanders' office has marble floors and a private bathroom, sources say. Sanders' 2001 compensation included $465,000 for the use of company vehicles and planes. In 1998, the California Public Employees' Retirement System (CalPERS) called for shareholders to vote in an independent chairman who could objectively monitor Sanders' performance and compensation. In 1999, a ninth board member was added to placate TIAA-CREF, an employee pension fund that complained about the presence of too many of Sanders' friends on the board. AMD also fostered a close identification with its founder. Sanders has appeared fairly regularly in employee literature -- as Indiana Jones and the drummer in the "Spirit of '76" painting, as well as, occasionally, himself. In addition to the marble bust, the AMD corporate lobby has featured a painting of Sanders as a medieval king. "The first thing you saw when you walked into the lobby (in the mid-'80s) was good King Jerry with a lance on a horse," said Mike Feibus, a consultant running Feibus Strategic Consulting, recalling the medieval theme. "With such a charismatic leader, it has been tough for less-charismatic underlings to flower." While most of the activity has been harmless, former employees acknowledge that sometimes there was little difference between company policy and Sanders' personal likes and dislikes. "He places an extremely high value on loyalty," said one former executive. "Loyalty matters more than talent." An AMD representative acknowledged that Sanders and AMD place a high value on loyalty but denied it has had any effect on promotions or other issues. Sanders and Ruiz declined to be interviewed for this story. The victories On the other hand, others say, look what the company has accomplished. Every other company that has tried to take on Intel in the PC processor market -- Cyrix, IDT, National Semiconductor, Rise, Transmeta, Via, Zilog -- has been marginalised. Part of AMD's problems in the early '90s can be traced to a series of acrimonious lawsuits with Intel -- from 1987 to 1994. The courts largely sided with AMD, said Lovgren, and the settlements and verdicts led to licensing agreements that let AMD make chips without fear of further lawsuits. Intel was "out to screw us," said Lovgren. "That was a real eye-opener for Jerry Sanders." Lovgren recalled that Sanders sat through "every second" of one of the trials. "There were certainly bridges that were burned." Sanders has also shown a knack for pulling off acquisitions and strategic relationships, a skill that seems to elude other Silicon Valley chief executives. In 1996, AMD bought NexGen, a small processor company that had designed a widely regarded Intel clone. AMD had just come off the disastrous launch of the K5. The chip was late and didn't perform as billed. To complicate matters, AMD had built Fab 25 in Austin, Texas, specifically to manufacture the K5 and faced a financial debacle if it couldn't get another chip design fast. In his first meeting with NexGen employees, who were skittish about the merger, Sanders said that he bet AMD's whole future on them, according to one source. He also promised to take a hands-off approach. The bet paid off. The NexGen team came up with the K6 and the K6-2, and laid the groundwork for the Athlon. "Jerry realised how important it was not to interfere, and it worked," recalled a former NexGen employee. "We were kept in a separate building with our own separate rules. We didn't have to wear badges or deal with corporate overhead." Said Insight 64's Brookwood: "Before they got NexGen, I don't think they had a clue how to design a complex microprocessor." AMD faced a series of problems with the K6-2 line, but it improved gradually. Since then, AMD has regularly absorbed technology and engineers from the outside. The Athlon chip, for example, uses a bus originally designed for Digital's Alpha processor and designed by Dirk Meyer, the father of the Alpha chip and now the head of AMD's processor group. The chip's copper manufacturing process was co-devised with Motorola. Hammer will contain IBM's silicon-on-insulator technology for channeling power. In January, the company also unfurled a joint venture with Taiwanese foundry United Microelectronics Corp. which, according to analysts, will help AMD keep pace somewhat with Intel's massive advantage in manufacturing, but at a lower cost. Sanders once said, "Real men have fabs," but sharing appears to be coming into vogue: IBM, Sony and Toshiba recently signed a chip-development alliance to shave costs. A life's work Despite its country club reputation, AMD has also served as a training ground for future Silicon Valley stars. Cypress Semiconductor founder T.J. Rogers, Rambus chief executive Geoff Tate and MIPS chief executive John Burgoyne, among others, came from there. "Inside of AMD it wasn't like, 'Hey, let's run around and wear pink suits and look like oddballs,'" said John East, who left AMD in 1988 to eventually become chief executive of Actel. East was discounting an often-heard rumor that Sanders once wore a pink suit to a meeting with IBM. "He could be very intimidating. The public persona is not the (real) Jerry." Sanders was also fairly generous, East added. In the 1980s, Sanders clung "like crazy" to a no-layoff policy and fought with the rest of the executives before bowing, East recalled. "He was banging on the table, (saying), 'I'm not going to preside over the dismantling of my life's work.'" Sanders was also the one behind a 1981 contest where an employee, Jocelyn Lleno, won $1,000 a month for 20 years, enough to buy a home in Silicon Valley. Lleno, a fab employee, had only been at AMD for 14 months. "So Jerry went to her house to give her the check," East said. "Channel 7 was there. She opened the door in her bathrobe. He's a fun guy and tends to do things in extremes."

For a round-up of the latest tech business coverage, see the Business News Section. Have your say instantly, and see what others have said. Go to the ZDNet news forum Let the editors know what you think in the Mailroom.

Daily Newsletters

Topics

Related stories

AMD 64-bit chips get Windows support

AMD to phase out Durons by end of year

Is AMD losing its supercomputing lustre?

Heart of England NHS begins massive digitisation plan

Hard-drive woes hit PC shipments in fourth quarter

Post your comment

ZDNet UK Live

Latest in IT Strategy

Heart of England NHS begins massive digitisation plan

Hard-drive woes hit PC shipments in fourth quarter

Featured white papers

Latest jobs

PHP Web Developer - html, css, javascript

Java Developer, Online Gaming, London

Quant Dev, Hedge Fund, FX, Excel VBA

Inside ZDNet UK

A tale of two distros: Ubuntu and Linux Mint

2012 Predictions: VCE FastPath, VI SAN Probe & Hadoop

BlackBerry Bold 9790

Make faster, smarter decisions using BI

Ten factors that make Ubuntu 11.10 a hit

Toshiba Portégé Z830-10P Review

BT's archive: Pictures from the vault

News & Analysis

Reviews

Blogs

Resources

About Us

Member Services

Special Features

Advertising Features

ZDNet UK / News and Analysis / Business of IT / IT Strategy